Traders who have been participating in the market for longer than a cup of coffee inevitably go through rough patches. I would equate these times with that of a baseball player going through a slump, or a golfer struggling on the tour. It starts out with a few errors, or a couple trades that don’t go your way, but ultimately grows and develops through your own mental struggles and emotional hurdles.

I have been through many of these patches as a trader and while each season of challenge has in the end, only made me stronger, they are never fun and always test me to the core. Unfortunately, while all of us will go through these challenges, rarely does anyone take the time to relay the experience directly, rather most pretend as if they never occurred at all. At present, I am going through one of these rough patches, so I thought it may be helpful to relay the process I have begun, in real time. 

Own the Mistakes – It is always easy to pass off mistakes on the environment and or situation. Before I can move back into the winning way, I have to fully accept what put me into the current situation. I was having a very solid year until the month of June. I had respected and played the tape for what it was, not what it could be and successfully avoided losses early in the year and went on to capitalize during the latest bounce. My confidence was high, as were my accounts however it was at this time I started believing I was smarter than the tape. When we started the May fade that ran into the June fall, I started to slowly wade back into the market looking for a turn. I was early, a common term in our business that really means wrong. Rather than stepping out quickly, I kept these positions on and waited, while the market continued to fall farther and farther. Despite it being a small amount of exposure I became stuck and rather than throw in the losing trade, have kept it on playing hope rather than the tape. I have accepted this mistake and while I will not dwell on it and let it keep me in an emotional dungeon, I will not pass if off on the environment or circumstance. I own it, it is mine.

Re-establish the Style – Every trader who has tasted success has a style that was at the center of this experience. More often than not, a trader going through a rough patch has slowly gotten away from his style and rather than morph into a new style, must right the ship quickly and re-establish the important tenets that the style possesses. Often it helps to write this out while at the same time reviewing previous trades to identify the style drift on each individual move. It is important however to not dwell on these mistakes, rather simply review them, make mental notes and move on. Traders looking to move forward, must keep their eyes on the future, not the past. I have done this, and feel confident in the style I adhere to and the future before me.

Understand the Process of Challenge – The irony of this whole process is that a trader will never stop going through similar situations. They may come at different stages in ones game, through different markets or different events, however come they will and I find it ironically comforting to know that no matter what I do, I will continue to face adversity through trading as long as I accept the challenges of this craft. It is why trading is so very rewarding, but never easy. At this very moment, I suspect that some of the greats such as Bill Miller are going through challenges of their own and working through the mistakes made. We often believe that these rough patches no longer apply to people of a certain caliber. This of course is not true, and we should all take refuge that at some point a rough patch will occur for us all. I am certain I will move through this challenging time, however I am just as certain that down the road, another one awaits me.

Reset and Refocus – The greatest thing about the markets are that each and every day new opportunity is presented. When a trader is going through a rough patch, and playing hope rather than the action at hand, it is important to undo the problems and start anew. This could be simply viewing the position as if you had just bought it and establishing firm rules of where you would sell or cover, however more often than not, a cleansing process must be pursued whereby the problem trades are eliminated altogether. Traders must understand that Mr. Market will always look to pour salt and often it is inevitable that the problem position will bounce shortly after being sold, however that is no reason to remain in the position while the financial and emotional capital slowly erode on a daily basis. At this very moment, as I see the market continue to drop and panic set in, I am reminded just how important it is to cut ones losses quickly. I still have a few positions that are broken or teetering on ill-health that need to be cut. I will pursue this in a methodical fashion and slowly remove the cancer with one incision at a time.

Set Actionable Goals of Correction – Like many individual athlete sports, trading is unique in that success is determined by the mechanics of the action and not necessarily the result. For example, a golfer may shoot the best round of golf in his career but lose the tournament. Was his performance a success? Of course it was. I often say that success in trading is in the style not in the outcome. This is of course predicated on the fact that if one is continuously successful executing their style, this will result in trading success over time. When traders set goals, they are often goals of performance which is acceptable as a brush stroke, however when a trader is faced with adversity, goals need to be simplified down to the qualitative execution rather than the quantitative outcome. For example, over the past several days, I have set a personal goal to possess a plan for each and every trade I make. If I do not follow this plan, whether profitable or not, I have failed however if I follow this plan I have succeeded. Again, the outcome at this point is not what matters, it is that I have firmly re-established the process and I am adhering to my style. The trick is to do so small with little risk, so that my confidence can rebuild slowly without doing further harm.

Persevere – Sometimes it is as simple as hanging in there and continuing to press on towards the goal. I am often encouraged when I see others who have succeeded through adversity and while the specific situation may not correlate with trading stocks, it is the simple fact that the person made a conscious decision to move forward, despite the obstacle. Regardless of what the markets do today, tomorrow or the next, if you as a trader continue to push forward, making sure you remain in the game, following your disciplined strategy, you will once again meet success. I have experienced it myself time and again, I have seen others do this as well and over time it quitting no longer becomes an option.